28 April 2006 Daily Comment

Microsoft’s net income was up 16% but it missed consensus estimates by a penny last night and gave a glum forecast and the share price is down 10% in early morning trading. Whether that miss will affect the other techs or remain company specific is the question for today.
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UBS cut Aetna’s price target from $61 to $51 and maintained their buy rating. With a purchase price for us of $37 we will happily take $51 in the next year.
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There is now $9.4 trillion in mutual funds. Measured against the $1.3 trillion in hedge funds, the amount of buying power are about equal given the hedge funds ability to lever their assets which they do all the time.

Remember the when a hedge fund earns a 40% return and has been leveraged 10 to 1 that is like ordinary folks earning a 4% return with no leverage and much less risk. The difference is that hedge fund investors for some strange reason pay the folks who run hedge funds 20% of the profits to take such risks. And the hedge funds only risk is that it won’t earn its fee while the hedge fund investors’ risk is that if the hedge fund guesses incorrectly the investor will lose a large chunk of change.
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Overseas markets were lower overnight and MSFT ahs cast a pall on the early morning trading. Oil is down more pennies and gold is up a few dollars.

Advance GDP was 4.8% which was expected. Stocks are higher. Treasuries are coming in on the long end.
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After reading and listening to Bernanke’s testimony last night we decided to invest cash we have been holding for bonds. We bought the two-year 4.875% Treasury note due 4/30/08 at a teeny weenie under par. This yield is 1% more than we are earning on cash and a pick up of 30 bps from our February foray.

Our thinking is that if the Fed stops after the May meeting we will have locked in a good two year return. If at some point the Fed begins again to raise interest rates we have the option of extending maturities to pick up the extra yield. And if there is an untoward event these Treasuries will rally and we will be able to raise cash at a profit to move into stocks.

We know we are taking a conservative approach but we think such an approach is warranted.
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Upon further review we would rather own MSFT at $24.25 down $3 than AET at $38 and so we are switching our AET to MSFT and adding MSFT to other accounts as well. AET has more bangs on the upside than MSFT over the short term but also more risk on the downside. MSFT is having an earnings visibility problem right now coupled with ‘going nowhere’ holder fatigue. We think now is a good time to buy a bit. MSFT is back to where it sold in 1998. Since that time earnings per share and sales per share have doubled, working capital and equity per share has tripled. It is currently priced at the lowest P/E ratio (16X) since 1988 (18 years).
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Based on yesterday’s action and the close on the S&P 500 our guru sees a rally into the end of May. We are not following his advice because we are chicken.
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Chicago PMI for April was 57 versus 60.
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Since the Fed began tightening in June 2003 the thirty-year Treasury has lost 17% of its value and ten year has lost 16% of its value. Since interest rates were only 3% at the time those losses are over five year’s worth of interest payments. And holders still own a 3% coupon.
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The U.S. dollar is at an eight month low.
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Microsoft will trade over 500 million shares today. When we began working in the business back in 1965 that was a good two months worth of trading for the entire NYSE.
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Gold ended $18 at $654 which is a 25 year high and Oil closed at $71.75 up 70 pennies as the Friday close approaches.
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Treasuries are closing lower in yield with the two-year at 4.86% and the ten-year at 5.06%. The yield inversion of a month ago has now reverted to a 20 basis point spread between the two and ten year.
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Bank stocks are moving up today as the yield curve steepens and rescues their loan portfolios. We think investors are ignoring credit quality but that is what makes a market.
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The DJIA closed down 15 points at 11368. The S&P 500 gained 1 point to 1310 and the NAZZ lost 23 points to 2320.

Breadth was positive all day. Volume was brisk and new highs exceeded 525 while new lows are 150.

And the Casino is closed for week-end cleaning. The Wheel of Fortune will be ready for spinning again on Monday.
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27 April 2006 Daily Comment

How strange it is that many oil companies are missing their consensus numbers and reporting earnings that are better but less than expected. A refinery here, a tanker there, and all sorts of nagging problems are preventing them from reporting record profits. Could some mysterious malady be affecting the oil companies at a time record high prices?
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China raised a key interest rate to dampen speculative lending and while Japan and Hong Kong finished slightly higher ahead of the Chinese move European bourses are trading lower by 1% or more. Gold is down $10 and oil is off 70 pennies. Treasuries are unchanged to a bit higher in yield. The two-year traded at 5% in the early going. We are a bit greedier for yield right now and so are maintaining our wait and hear Bernanke today and see Advance GDP tomorrow mode.
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Jobless claims were 315,000 versus and expected 305,000.
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In Bernanke’s statement released before as he begins testimony he mentions the word pause and on that news the Treasury and stock market have rallied a bit. The boys and girls are antsy. Here is a link to the full text of Bernanke’s testimony before the joint session of The Congress: http://www.federalreserve.gov/
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After an hour of trading stocks the major measures had moved higher on the Bernanke testimony rally but the move fizzled and now at 10am the DJIA is again down. Breadth never did turn positive. Treasuries are maintaining about half of their gains with the two-year at 4.93% after trading in a range of 5% early this morning to 4.90% right after the testimony commenced.
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The CEO of Intel, Paul Otellini, says he is going to resize and restructure the company and forecasts high single digit growth in personal computer sales for this year.
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NASDAQ short interest is at a record high which is usually a bullish sign. The theory is that trades who are short stock eventually have to buy it back and that it is a source of future buying. With all the different hedges and computer games that now exist we don’t know whether that theory still is a reliable as in the good old days.
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We decided to try and catch a falling knife and bought Aetna with room to buy more in our large/aggressive accounts. We bought the shares when the stock was down $9 at $37.70 and it promptly fell another $2 before bouncing. We are buying to own for a while and not trade quickly unless….. The shares are down because AET said they have to wait till fall to raise premiums on their smaller customers because that is when the policy anniversary dates mature. It seems a little crass to hope AET raises already high premium rates to make a higher profit and have the share price rise but until folks vote in Congress people who will get the medical insurance catastrophe under control we may as well try and make a few bucks trading the stocks.
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Our revised thought process on buying a stock like AET which is under pressure or VZ or T  for the 5% dividend yield and maybe a 10% gain besides, is not to look for day trades but to look for month or longer situations where we are not at the whims of the big boys and girls. Actually it is the big boys and girls abandoning AET today that is presenting the opportunity. But there may be more large actors exiting the stock over the next days or weeks and that is why we left room to buy more once the share price reaches some sort of equilibrium. AET is down from $52 to $37 which is a good correction in price. AET earnings were actually higher for the quarter.
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The S&P 500 is back above 1309 at 1314 so today’s market action may mirror the Fed minutes rally of Tuesday a week ago. Remember what occurred the rest of the week-nothing.
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The reason we haven’t purchased T and VZ in all our sizable accounts is that with VZ we are not sure how the markets will greet a Vodaphone buyout. We think it will be a positive but we don’t know if analysts will like the price VZ has to pay. We are guessing VZ wants a cash/stock deal and that VOD wants all cash and that that is the hang-up. We thought the MCI takeover was good last year but the arbitrage and price war with Q pushed VZ shares lower until the deal closed.

With T we are waiting till the fall since the momentum folks are controlling the buying and selling right now and T is not on their radar screen. It looks to us like the big boys and girls are using T and VZ as sources of cash when they want to take dicier positions.
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We have to head off for the afternoon but we will be her tomorrow for the last day of the week at the Grand Casino.

As we leave the major measures are up but off their highs and Treasuries are strong on the short end with the  two-year at 4.90% and better on the long end with the ten-year at

5.07%.

Oil is down 70 pennies and Gold is flat.
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26 April 2006 Daily Comment

Durable Goods orders for March were up 6.2% versus 1.6% expected and the prior month was also revised higher. The Durable Goods numbers are volatile because they represent such big ticket items. Treasuries are moving lower in price higher in yield on the news.
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Overnight Japan was up over 1% and Asia was higher as is Europe in the early going. U.S. futures are flat. Oil is off a few pennies and Gold is up $1.
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Citigroup placed a sell on Dell.
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Our guru says that 1280 is the new downside line in the sand for the S&P 500. He wouldn’t be surprised by a rally higher that fails. It’s called covering your bets.
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Investors Intelligence for the latest week has 45% Bulls versus 48% the prior report but Bears dropped also to 22% from 24%. The rest were for a correction?
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The markets opened higher with the DJIA up 40 points after 15 minutes. Breadth is 2/1 positive. Treasures remain weaker and oil is $72.40 down 48 pennies while Gold is down $1.40.
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Mother Merrill went to neutral from underweight on GM overnight and that has placed a bid in the stock. Ford is higher in sympathy. And old dumb Kirk Kerkorian is chuckling.
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New home sales were up 13% in March 2006 which was better than expected. But that number is 7% below last March and the median sales price of houses was $224,000 and the average sales prices was $279,000. The median sales price is 2% lower than last year and the first year over year decline since December 2003.
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Crude oil and gasoline inventories for the latest week were down 50% less than expected.
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There is a time to buy and a time to sell and the New York Stock Exchange has decided that it is time to sell 15 million more shares of itself to the public.
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The Fed Beige Book was released and there is a hint of inflation. We spent $60 filling up our pickup truck yesterday. But that doesn’t count in the inflation picture.
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Bernanke testifies at 9am CST tomorrow. Advance 1^st Quarter GDP is Friday.
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Oil closed at $71.90 and Gold finished at $642.
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Treasuries gave ground with the two-year at 4.99% and the ten-year at 5.12%.
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The DJIA closed up 70 points at 11350. The S&P 500 gained 3 points to 1303 and the NAZZ closed up 3 at 2333. Breadth was positive on the NYSE and Negative o the NAZZ and there were 380 new highs and 190 new lows. Volume was moderate.

And there are two more fun days left this week for the boys and girls to spin the Wheel of Fortune.
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25 April 2006 Daily Comment

Scott Mc Nealy is out as CEO at Sun Micro and the share price is up 10% which is good for him since he owns a ton of stock in the company he founded.
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Hong Kong was off overnight but most of the rest of Asia was higher. Europe is higher in the morning session. Gold is at $629 and Oil is $73.70. Treasuries are easier with the two year at 3.89%, the five-year at 4.91% and the Ten-year at 5%.

We are itching to buy some Treasuries but continue to look for a 5% handle on the two-year before we commence. We feel that if the Fed does stop at 5% on the Fed funds rate that there will be enough doubt after the initial rally to buy bonds near these current levels and that conditions suggest that the Fed may go higher.
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The NAZZ is below its 50 day moving average as the trading day begins. Both Bulls and Bears are pointing to positives for their positions. We chickens just don’t see a compelling reason to risk our necks at these levels. Many stocks are triple where they were three years ago and the daily crashes in stocks as the momentum folks abandon them for one reason or another is unsettling and mind focusing at the same time.

We are as greedy as the next person and since we are now living on our earnings from our portfolio we would like to make as much money as we can but we don’t wish to lose principal to do so.

Index buying is the name of the game and the obvious oil and precious metals plays have become yo-yos in their price action.

And so we remain on the sidelines biding our time.
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Bush has halted deposits to the Strategic Petroleum Reserves (SPR). It is interesting that the Repubs do things for which they chastised the Dems when Clinton was in office. There is not shortage of oil; there is a shortage of refining capacity because Mobil and Amoco have echoes to close refineries for maintenance right at the beginning of the summer driving season. And if the Busies are intent on keeping pressure on Iran to the point of suggesting military action, continuing to build up the Strategic Petroleum Reserve would make more sense.
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Oil is down $1 on the closing the SPR closing news. But Exxon Mobil is countering that action by closing its Nigerian terminal because of terrorist threats.
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Big Surprise, Bush opposes windfall profits tax on oil companies. He wants to encourage conservation and the use of ethanol. We’ve heard both those canards for thirty years. If that is the case why is there a almost total tax write-off when buying SUV behemoths and why does Bush drive one all over his ranch to cut wood?
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Existing Home Sales in March were at a 6.92 annual rate versus 6.6 million expected and up from 6.6 million in February. Consumer Confidence in April was 109 versus 106 expected and up form 107 in March. Both those numbers were stronger than expected.

On that news Treasuries have weakened as a move to 5.25% becomes a possibility.
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Fed Chairman Bernanke gives a speech on Thursday and Treasuries are now going to focus on that speech. There are Treasury auctions today, tomorrow, and Thursday.
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Model Portfolio Yearly Performance Inception 12/31/1983 thru 4/21/2006
Date Ending	Market Value	Portfolio %Return	S&P 500 %Return
12/31/1983	$49,934	Started	N/A
12/31/1984	$50,294	1%	6%
12/31/1985	$68,299	36%	32%
12/31/1986	$81,538	19%	18%
12/31/1987	$96,472	18%	6%
12/31/1988	$108,947	13%	16%
12/31/1989	$119,298	10%	31%
12/31/1990	$107,885	(10%)	(3%)
12/31/1991	$144,418	34%	30%
12/31/1992	$152,125	5%	8%
12/31/1993	$152,654	0%	10%
12/31/1994	$153,553	1%	1%
12/31/1995	$177,382	16%	38%
12/31/1996	$200,666	13%	23%
12/31/1997	$220,832	10%	33%
12/31/1998	$245,951	11%	29%
12/31/1999	$353,461	44%	22%
12/31/2000	$356,212	1%	(9%)
12/31/2001	$429,804	21%	(12%)
12/31/2002	$460,305	7%	(22%)
12/31/2003	$525,365	14%	28%
12/31/2004	$570,633	9%	11%
12/31/2005	$556,147	(2.5%)	3.0%
4/21/2006	$568,799	2.3%	5.1%

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Entering the contra hour the DJIA is down 60 points and NYSE breadth is 2/1 negative. The NAZZ is lower by 7 and breadth on the NAZZ is 5/4 negative. The big boys and girls may be setting up to try and pop the markets higher in the last hour.
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Treasuries are lower in price higher in yield today with the two-year back up to 4.95% and the ten-year at 5.07%. The Treasury TIPS auction did not go well. There is an auction of the two-year tomorrow and the five-year on Thursday.
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The new chatter is that if the Treasury pauses in raising the Fed Funds rate then the dollar will continue its decline. That is because foreign interests who hold $4.3 trillion in Treasury debt will look for other places to find yield since the decline in the value of the dollar will not be offset by an increase in yield income. That in turn will cause bond prices to fall as that debt is sold. And so longer term Treasury issues will rise in yield.

This chatter explains why our initial investment in Treasuries will be the two-year as we think the Fed pause is coming. If rates continue to rise we will have the option of selling the two-year and buying a longer maturity Treasury at a higher yield and lower dollar price.

Also two-year Treasuries are readily marketable at a small spread should events warrant moving the invested funds back to stocks.
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Gold ended the day session at $634.20 up $10.30. Oil finished the day session at $72.88 down 44 pennies.

Treasuries closed on their low prices for the day with the two-year at 4.95% and the ten-year at 5.08%.
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The DJIA was down 60 points at 11275. The S&P 500 lost 7 points to 1302 and the NAZZ dropped 5 points to 2328. Volume was brisk.

Breadth was 2/1 negative and new lows expanded to 150 while new highs contracted to 310.

And tomorrow is mid-week in the Casino society and there is a two-wear note auction and other fun events and announcements scheduled. We’ll be around.
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24 April 2006 Daily Comment

Japan was down 2.8% and Hong Kong was off 1.2% in overnight trading. Europe is also lower and the metals and oil are down.

Stocks have opened weaker while Treasuries have a bid.

Earnings continue to beat the estimates but this morning’s down action is probably related to Friday’s expiration and the pop up in the major stock measures in the last half hour. This early reversal of that move may mean waiting until tomorrow to see the direction for the week.

The major measures are at their high marks for five and six years and the question is: “Are they going higher, sideways or lower?” But then that is always the question.
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With gold and oil and stocks all at highs in price and Treasuries at their highs in yields something has to give eventually. The normal course of activity would not see all four major groups moving in the same direction.
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Friday’s close on the DJIA was the highest since January of 2000. That means that the DJIA is back to where it was in January 2000. That means that if you owned the DJIA in January 2000 and held you are even, after a lot of heartburn, with about 10% total gain from dividends.

The Lemley Model Portfolio is up 56% since then. That is why we are taking it easy right now.
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At midday stocks remain lower with breadth 2/1 negative and volume light. Oil is down over $1 and gold is down $5. Treasuries are firmer.

We have to take off for the afternoon so we’ll bid adieu.

The Casino will be open for business as usual tomorrow and we’ll be here.
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21 April 2006 Daily Comment

Asia was mixed overnight with Japan up one half percent and Hong Kong down a bit. Europe is mostly higher and Oil is down 60 cents to $73.10 while Gold is at $660 down another $2.80. We had a $71 dollar NY close on oil yesterday so there must have been some interesting action overnight.
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Google had great numbers and the share price is up 10% this morning setting a positive tone for the opening.
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JP Morgan & Co. agreed to pay $425 million to settle civil charges of improperly awarding hot new stock issues during the market bubble, indicating Wall Street's tab for the class-action case could hit $4 billion.
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Ford lost $1.2 billion in the quarter on write downs. Earnings from continuing operations were 24 cents per share.
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EBay and Microsoft and Yahoo are in talks to try and figure out how to stop the Google train.
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Capitol One, the largest credit card issuer, announced bang up quarterly earnings and said the credit quality of its portfolio had increased. As a result they reduced loan loss provisions by $600 million which is why earnings were better. That action flies in the face of the deterioration of credit quality in credit card issuance.
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Citigroup upped Hershey to a buy, citing valuation. Even with the upgrade HSY is priced below where we sold a few months ago. And the big boys and girls are buying momentum stocks not value stocks. Values stocks are October’s buys.

In that same vein, there was an article in the WSJ today extolling the value in Bausch & Lomb, the contact lens folks. The stock has dropped about 40% in value in the last month because of the botched recall of the ReNu solution that was contaminated. The article called BOL as value play. The shares opened $1 higher but are now below last night’s close.

And the same happened to Intel yesterday after earnings. It opened higher and closed lower and is lower still today. Folks are now calling it a value play, which it is.

All three stocks are on our radar screen. But momentum is the name of the game in April and May and that is a game we don’t play well.
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Wintrust Financial is down 12% today after announcing earnings. This morning three brokerages lowered their ratings on the stock.

The only negative we could see in the report was an adjustment on some swaps where income was overstated last year and moved to this year.

We are commenting because City National Corp dropped 10% yesterday on their earnings report. It too is a $3 billion bank. We don’t’ follow the area closely but 10% drops in an instant are an indication of a lack of liquidity or willing buyers.
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Anecdotally a local bank which is part of a larger bank holding company in Wisconsin, not the one we use, was scammed by its lending officer to the tune of a $2 million loss. And the accountant of one of our clients committed suicide after he was discovered to have pilfered a million dollars from two trusts for which he was trustee.

We haven’t seen these kinds of stories for a while but we think they are representative of the Wild West atmosphere and greed that is back in the Casino.
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Silver (up 7%), gold (up $16) and copper (up 6%) are rebounding today after markets digested the raising of margin requirements on these commodities as of the close of business today.
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Crude Oil ended trading in NY at $75.21 up $1.51. Gold is trading at $637. Most of Europe closed higher on the day.
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With an hour and one half to go in Casino’s wheel spinning the DJIA has moved to the negative side for the first time after being up over 40 points early in today’s session. The NAZZ has been lower all day on the heels of yesterday’s lower close and is now down 1%. Breadth is till positive on the NYSE but negative on the NAZZ.
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www.minyanville.com is suggesting that there is “trouble” with a large hedge fund or funds or institution or institutions in copper. Whether it is actually occurring and/or is isolated or systematic will be interesting.
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The DJIA finished up 5 points at 11348. The S&P 500 closed down 1 point at 1311. The NAZZ ended at 2343 down 20 points.

Breadth was negative at the close and volume was active. There were 500 new highs and 125 new lows.

The Casino is closed for the week-end.
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20 April 2006 Daily Comment

Earnings are burning up the wires and except for Intel, EBay and a few others most are above estimates and setting a very positive tone for today’s opening.

Overnight Japan was off a bit but most of Asia was higher as is Europe at midday.

Treasuries are higher in yield with the two-year at 4.89% and the ten-year at 5.04%. Initial jobless claims for last week were 303,000.

Oil is at a record $72.49 after a car bomb exploded in Nigeria’s oil producing region and gold is up again. Today is pivotal for the bulls. They need a good up into Friday’s expiration. The S&P 500 stopped at 1309 yesterday and needs to get through that level convincingly for another leg up.
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We are now hearing the talking heads speak of Gold as a storehouse of value. That reference brings back memories of our Money and Banking economics class with Lev Dobrianski back at Georgetown University in 1964. Janet Yellen, the President of the San Francisco Fed, said yesterday that the rise in the price of Gold was related to ‘strong economic global growth’. The story line goes that folks in developing countries want to place their gains in hard assets since the currencies are not stable in times of crisis.

We don’t know that paying twice the price of two years ago for gold makes sense but that is the story. It isn’t that same story for Oil since oil can’t be worn as an ornament but there again folks in the know are dismissing the record price as something we all can live with. We’ll we can live with it but to say that oil and gold and copper and steel at record price levels is not inflationary is hogwash. The BLS is massaging the numbers and in a bull market all favorable numbers are believed and all non favorable are dismissed.
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Golden West Financial in announcing earnings that were a penny shy of estimates also revealed increased its loan loss reserves from $850 million to $4 billion. They are one of the largest issuers of adjustable rate mortgages. Do they know something?
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The DJIA is up 80 points in the early going with GM up $1.80 and Merck up 90 pennies leading the way. That is not the leadership needed to continue the rally. Breadth is negative.
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Apple is up $4 and EBay is down $3 after both announced first quarter results last night.
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The WSJ reports today that folks are using margin loans i.e. loans on stocks in portfolios not to buy stocks but to fund other purchases like airplanes an artwork and second homes. Say What? Talk about risk. And the brokerage houses are encouraging this behavior.

UBS AG's wealth-management division says about 75% of its more than $10 billion in securities-based loans are used for purposes other than buying additional securities, including for purchasing real estate and cars or for paying tax bills and a child's tuition. UBS says one client borrowed money against his investment portfolio this month to buy a jet, because the rate was lower than he could have obtained on a loan elsewhere. E*Trade Financial Corp., a major discount-brokerage firm, is offering a low rate of 3.99% to certain customers and is suggesting that they use such loans to pay down higher-interest debt.

Citigroup Inc.'s Smith Barney unit says some of its high-net-worth clients are using securities-based loans to buy artwork and boats. There is a "dramatic and marked increase" in these kinds of loans, says Bob Matthews, director of wealth management at Smith Barney. Both UBS and Smith Barney say they reward their financial advisers for selling securities-based loans whose proceeds are used for purposes other than to help an investor buy additional securities.

It is a new day or so some folks say. This is more from the WSJ article:

Brokerage firms play down the risks of margin lending, saying it is unlikely investors will be hit with margin calls if they hold a diversified portfolio of stocks and bonds, domestic and international securities, and other assets. "People generally think of margin as being scary and speculative, but really margin is another collateralized loan that's no more scary than a home-equity line," says R. Jarrett Lilien, president of E*Trade.

That is our underline. What Lilien say is wrong, very wrong but brokerage commission rates have fallen so low that the only way the E-Trades and Schwabs can make money is on margin loans. And of course the name of the game is to make money not worry about risk until….

The difference between a home equity loan and a margin loan is that with a home equity loan the value of the home can go down 50% and the bank won’t sell you out as long as you make your interest payments. With a 50% margin account loan if the value of your account goes down 25% and you don’t put up more money you are sold out.
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Silver is down 13%, copper is down 10% and gold is off 3% ($20) two hours into the trading day; maybe ‘strong global economic growth’ just became weaker.
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There are rumors going around that the NYMEX is going to raise margin requirements on certain commodities. That may be one reason for the large drop in the metals complex today. The locals probably got short yesterday.
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At 11am breadth is now almost 2/1 negative as oil and mineral related stocks drop in sympathy with their underlying commodities.
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Google reports tonight and that will set the tone for Friday’s trading. The ‘whisper’ number is $2.
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In March nearly 144 billion shares of penny stocks were traded. The last time anywhere near that number of shares traded was the salad days of the dot.com era. In the spring of 2000, traders put on trades of around 5,000 shares at a time for stocks that averaged about $1 per share. Last month, they were averaging 82,500 shares per trade at an average price of $0.05 per share.  These statistics were presented by Jason Goepfert on www.minyanville.com. It is our favorite financial website. It is a pay for but well worth the dollars.
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Hedge funds gathered new dollars in the amount of $24 billion in the first quarter of 2006 reversing an outflow of $800 million in the last quarter of 2005 according to Thomson Financial Services. Hedge funds now manage $1.1 trillion and growing at ten to one leverage that is a lot of fire power to move markets--- both ways as is evidenced today by GM up 10% and silver down 20% today.
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The average pay of a worker in China is $100 per month. The average pay of a U.S. worker is $100 per day. (CNBC)
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With two hours of trading to go the NAZZ is down 7 points while the DJIA is up 80. And Apple is only up $1.50 after being up $4.20 in early trading while EBay is on its low for the day down $3.50.
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At 11:04am Jim Cramer sent an e-email to subscribers saying he was buying 500 shares of Newell. The share price jumped $1 in about ten minutes. This is the good anecdotal evidence that the small speculator is back big time ….. and the specialist says thank you Mr. Cramer as the share price moves back down to where it ws trading before the e-mail. By the by, we didn’t receive the e-email until 1.10pm. The internet age is interesting.
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The Feds rounded up 1000 illegal immigrants today. Could somebody be trying to place a damper on the street marches scheduled for May 1?
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Rambus, which is a computer chip licensor and was a hot stock back 1999 going from $10 to $80 to $4 in 2002, is doing a mini version of that round trip today. It closed at $45 last night, traded as low at $30 today and is now at $38. There are rumors about a patent dispute. The company has a market cap of $4 billion and revenues (not earnings) of $180 million so nervousness among holders is understandable. By the by, former Senator John Danforth is General Counsel, and also insiders sold 2 million shares  last month. Danforth sold about $3 million worth of stock. What a stroke of luck.
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Gold finished at $622 and Oil was off 22 pennies to $71.95.
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Treasuries were a bit higher in yield with the two-year at 4.88% and the ten-year at 5.04% as the yield curve steepened.
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At the bell the DJIA was up 65 points to 11345. The S&P 500 gained 2 points to 1311 and the NAZZ lost 9 points to 2362.

Breadth was negative. Volume was brisk and new highs exceeded 500 while there were over 130 new lows. The new low figure is unusually high in relation to the number of new highs.

And tomorrow is the last Casino day of the week.
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19 April 2006 Daily Comment

The Fed minutes are being read as one and done (one more raise to 5% and then an announcement that they are going to watch and react) and that is the reason for the bullish move in stocks and the firming in Treasuries.

Earnings are coming fast and furious. Most of them are meeting or above expectations and that should give stocks a good beginning this morning. Then the bulls will need to carry through and get the major measures through resistance and onto new high ground for a run higher.

Motorola margins were constrained and so the stock traded lower last night although we would bet it will trade higher this morning. IBM beat but revenues were lower, Yahoo net was down but advertising revenue was higher and so the share price popped $2 in after hours trading. Amgen had good numbers but the stock traded off a bit. Coke was in line and not exciting. And that is the way the announcements have been going. No big blowups and movement higher on the news for most companies.

Yesterday’s action was the largest gain for the DJIA since April of last year. Does that say something?

We are basically cash and missing the fun but we are going to stick with our cautious approach. As we mentioned yesterday, history shows that 6 months to 18 month after the Fed stops tightening markets are usually 10% or more lower than they were on the day the tightening stopped. Of course the markets may run another 10% before the may Meeting and then the normal correction would only bring them back to today’s level. Even so, we want a decent correction before committing much cash and if we have to wait until October or longer then so be it.

With our 5% hope on the two-year we would expect a move back towards 5% as the May Fed Meeting approaches.
*****

Asia closed higher overnight on the heels of the U.S Market great day and Europe is following suit into the midday. Gold is another $5.70 higher at $629 and Oil is down 35 pennies at $70.90.

Treasuries are firm to better on the long end.
*****

As the guru we respect says the markets are what they are. Yesterday may be a one day wonder but our and his guess is that today is an up day. Then Thursday becomes a pivotal day if the markets open lower and buyers show up. Their purchases may exhaust the buying power leading to a reversal. The other scenario is that stocks move higher into the end of the week and we wonder how we missed the show.  Time will tell as the big wheel begins to spin at the Casino.

This is an options expiration week and so that is affecting action as is the fact that there are a large number of indexers out there. And the e hedgies are always around to work their magic.
*****

Investors Intelligence for the latest week had Bulls receding to 48% from 52% while Bears jumped from 24% to 26%. And then the market rallied.
*****

The Consumer Price Index for March was up 0.4%, ex the important stuff it was up 0.3%. Year/year the CPI was 3.4% and core was 2.1%. Stock futures are higher.

Crude oil inventories come later this morning and traders will key off those numbers.
*****

Yesterday we wrote that 10/1 up over down volume was bullish but we misspoke, we should have said 10/1 down over up volume is bullish because it marks the bottom. www.minyanville.com commented on the 10/1 up over down volume yesterday:

According to my quote vendor, there is just over 10 times as much volume flowing into advancing issues than declining issues as of now. The old saying is that the most vicious rallies occur in bear markets, and perhaps that's true...one month after the six other occurrences since 1997, the S&P 500 showed an average return of -3.6% with four of the six being negative. Be careful of buying into the hype that is sure to follow such a day."  Jason Goepfert
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Oil and gasoline inventories were lower but Oil is not rallying. At noon Gold remains higher and Treasuries are giving back some of yesterday’s gains. The major stock measures opened higher but have been mixed to lower since the first hour of trading. Given yesterday’s large jump some digestion is in order. The last hour will as always be the tell.
*****

Janet Yellen in on CNBC right now and her comments suggest that the assumptions of the overnight crowd of 5% and that’s it may not be the whole story.  It sounds to us like some hedging is going on.
*****

Tim Adams the Treasury Department’s top official on foreign affair is saying that Global Growth is at risk if the budget gap closing is too aggressive. Are the Republicans in power?
*****

The fawning by the business community over the dictator from China is stomach turning. So is Henry Kissinger’s big hug although we would guess that the Chinese paid big bucks for that hug.
*****

China with a billion plus citizens has a military budget of $35 billion.
*****

Gold ended the day session at $636 up $12.70. near the close of NYSE the metal is  trading at $644. Oil ended at $72.17 up 82 pennies. And there is no inflation.
*****

Treasuries closed a bit weaker with the curve steepening and the two-year at 4.86% and the ten-year at 5.03%. The three-year at 4.87% and five-year at 4.90% are now yielding more than the two-year for the first time in a while.
*****

The Bulls won today again. At the bell the DJIA was up 15 points at 11285. The NAZZ gained 15 points to 2370 and the S&P 500 finished at 1310 up 3 points.

Breadth was positive and volume was brisk. There were over 700 new highs and 150 new lows.

And there are two more days left at the Casino for the big boys and girls to spin the wheel of fortune before the week-end.
*****

18 April 2006 Daily Comment

Today is a big numbers day with UBS chain store sales, the Producer Price Index and all its permutations, Building permits before the opening and the FOMC meeting minutes at 1pm.
*****

The Hang Seng and Nikkei both gained over 1% overnight while Europe is mixed early on. Oil is up about 30 pennies at $70.70 in overnight trading and Gold is another $1 plus higher at $620. Treasuries are a bit firmer ahead of the PPI and Fed minutes.
*****

DH Horton reported a record backlog of 24,000 homes up 155 from last year and blow out earnings. Clearly the housing boom is continuing at this company.
*****

At 7:30pm and PPI was up 0.5%, ex food and energy was up 0.1%. PPI y/y was up 3.5%, ex Food and energy up 1.7%. Housing starts were 1.96 million which was less than expected (down 7.8%).
*****

Symantec received a $1 billion bill from the IRS for taxes related to its Veritas purchase.
*****

After the first half hour trading breadth is 3/1 positive on the NYSE and 2/1 positive on the NAZZ. It looks like the Bulls are going to try and take the markets higher on the backs of the good earnings reports and neutral PPI numbers.
*****

Fifth Third and National City banks both had lower earnings as interest income dropped and loan right offs rose. The money center banks are beating their numbers but the large regional banks that don’t have the investment banking and trading businesses are under-performing.
*****

Mother Merrill reported record revenues for the quarter. Profits were also a record if a $1.2 billion charge for stock based compensation is backed out. Why should it be backed out? Isn’t compensation an expense? And the interesting fact about brokerages is that the bonuses and stock awards continue even in bad times because these awards are needed to keep the traders and brokers from jumping ship.
*****

Fed Member Janet Yellen said today that the Fed funds rate is near neutral and that the Fed is worried about policy lag affect and going to far. With that news stocks more than Treasuries have rallied with the DJIA up 132 points three hours into the trading day. And the S&P 500 has pushed through the old 1295 resistance/support/resistance and now again support level to trade at 1298.
*****

The Fed minutes released say that they are close to quitting on the raises. Stocks are rallying further on that news.

On this point the following from Comstock Partners (who are usually bearish) from the pay for www.minyanville.com site is interesting:

Comstock Partners took this intuition one step further. To wit:

“The conventional wisdom that the end of Fed tightening is immediately bullish for stocks is simply not supported by history. In looking at the last rate hikes in all 16 instances going back to 1920, we found that the Dow Jones Industrial Average declined by an average of 19.1% from the date of the last rise in rates to the eventual market bottom. In fact the Dow dropped by at least 10% in 12 of the 16 instances and by more than 20% half of the time. In only four cases did the Dow actually rise after little or no decline, and one of those times was in early 1995. That is why Wall Street likes to bring up that one case while ignoring the bulk of the evidence.”

For the full comment go to http://www.comstockfunds.com/
*****

Gold ended at $623.30 up $4 and Oil jumped another $1 to $71.45.
*****

Treasuries also finished on the plus side with the two-year at 4.84% and the ten-year at 4.97%.
*****

The Bulls won the day and the month today and forced the Bears to do a lot of covering. At the bell the DJIA was up 180 points at 11260. The S&P 500 gained 22 points to 1307 after trading at that same old 1309 resistance number and the NAZZ jumped 45 points to 2356.

Breadth was strongly positive, volume was brisk and new highs jumped to 450 but new lows still exceeded 175.

The NYSE had 10/1 up volume versus down volume at the close (the NAZZ almost made it) and we haven’t seen that kind of a number for a long long time. It is a very bullish reading.

Friday is a Triple Witching day and some of the action today may have been related to that but we won’t know till then. Tomorrow the bulls have to carry through and Motorola, Yahoo, IBM, and Amgen and other earnings announcements tonight should set the tone for early morning trading.

With Gold, Oil and many other commodities at multi year highs and stocks at multi year highs also there is something that is going to have to give unless it is different this time. It may well be that the markets are different but we don’t think so. Greed and Fear still rule.

The Casino is humming and will be open again tomorrow and we’ll be here watching.
*****

17 April 2006 Daily Comment

Japan was lower by 1.4% overnight while Hong Kong was closed.  Most of Europe was also closed for Easter Monday. Oil touched $70 overnight and is trading a few pennies under that level in the early going. Gold is up $8 at $608.
*****

Citigroup exceeded consensus expectations with their quarterly earnings report.
*****

Lee Raymond the retiring CEO of Exxon Mobil received $51 million in pay for 2005. He is also receiving a retirement package worth $400 million. Nice work if you can get it.
*****

Moody’s lowered the rating on Jet Blue’s debt to speculative... Just a few years ago the gurus were suggesting that Jet Blue was the model for airlines of the future. And then reality set in and now Jet Blue is representative of airlines past.
*****

At 8:30am the Treasury ten-year is now at 5.03% having closed at 5.05% last week.
*****

Intel announces earnings on Wednesday after the close. This morning Needham cut its earnings guess for the year on INTC to $1.04 from $1.10. That’s called fine tuning ahead of the number.
*****

PPI and CPI data are released on Thursday. U.S. producer prices likely jumped in March, reflecting resurgent energy costs and the surge in commodity prices, but excluding volatile food and energy costs, prices probably rose modestly, a Reuters poll showed.

The median estimate from 40 economists polled by Reuters put the producer price index -- a gauge of prices received by farms, factories and refineries -- up 0.4 percent in March after a drop of 1.4 percent in February. The median forecast from 39 economists projects core PPI, which strips out food and energy costs, to rise 0.2 percent after an increase of 0.3 percent in February.
*****

This week about 120 S&P companies report earnings. The Fed minutes from the last meeting will be released tomorrow.
*****

The dollar is under selling pressure today.

The U.S. currency has declined about 3.4 percent this year versus the euro (now at 1.23 dollars to the euro) and it is basically unchanged in 2006 against the yen.
*****

In Des Moines on Monday Chicago Federal Reserve President Michael Moskow said that the Federal Reserve policy-makers must remain "vigilant" because of the risk of higher U.S. inflation.
*****

Oil closed at a record high $70.40 today. Gold ended at $618.80 up $18.70.
*****

Treasuries rallied on a low Homebuilders sentiment reading and the two-year closed at 4.90% and the ten-year at 5.01%.
*****

After opening higher the major stock measured turned negative around midday and moved lower into the close as Oil made a new high and Gold jumped. At the bell the DJIA was down 65 points at 11075. The S&P 500 lost 4 points to 1285 and the NAZZ dropped 16points to 2310.

Breadth turned from 2/1 positive early on to 2/1 negative at the close. There were about 230 new lows and 230 new highs. The new highs were made early in the day and the new lows later.

And tomorrow is another day and it should be interesting.
*****

13 April 2006 Daily Comment

This is the last comment until Monday April 17. The markets are closed tomorrow and the Treasury market is closing early today.
*****

AMD and GE both met expectations. GE expects to sell some more properties which are how it continues to meet expectations.

AMD is trading lower in the early session because they gave soft guidance for the coming quarter. GE is also trading lower.
*****

Retail sales were up 0.6% in March, ex autos up 0.4%. The ten-year Treasury at 7:30am is now at 5.01%. Japan is tightening and that is also a negative for Treasuries.
*****

We are off to ride horses with the prince. As we leave at noon the major measures are mixed in very light holiday trading. The NAZZ is showing the best strength on the backs of CSCO, INTC and AMD and other techs that have been down and out bouncing on low volume. We would guess that INTC is up because AMD is down $3 per share on their earnings report. CSCO was mentioned positively by UBS.

The Casino is closed for the weekend. Enjoy.
*****

12 April 2006 Daily Comment

Hong Kong and Japan were down over 1% overnight and Europe is trading lower. U.S. futures are indicating a higher opening. Yesterdays trading action breached support levels and so the ball is in the Bulls court to show that they have the stuff to get back on the upside.
*****

Vodaphone popped on another selling its wireless stake to VZ rumor this morning and so we decided to get out of our shares for a scratch. This stock is a soap opera and we have to get over trying to recover our loss in it last month. Something good may happen to VOD but we are concentrating on T and VZ.

And we would like to add some St Jude Medical, the heart device maker to accounts in the next month. The share price is down over 40% from its 12 month high and STJ announces earnings on April 19th.  STJ pre-announced that earnings would be less than forecast and it if the markets are in a funk next week there may be an opportunity to acquire a beginning position in the company. At current levels it is attractive and our caution now is market related not stock specific.
*****

Gold is back over $601 and Oil is pennies lower as traders await the inventory numbers. The Iran situation has faded from view this morning in traders’ eyes but remains on the back burner. We continue to believe the Busies are going to bomb them and…
*****

Today is weekly oil inventory day and traders are awaiting those numbers.
*****

The suspense is over and Oil inventories were up 2 million barrels more than expected and gasoline inventories were down 1.5 million barrels more that expected. That is what happens when companies shut down refineries for upkeep right at the beginning of the driving season. And low and behold gasoline prices are rising although there are no shortages. God bless capitalism and oligopolies.
*****

Goldman Sachs upped Hershey to outperform from in line. We have been watching the stock since we sold earlier this year (it is trading lower than our sale price even with the upgrade) but are holding off for now.
*****

Investors Intelligence has Bulls jumping to 54% from 49% and Bears dropping to 23% from 27% in the latest week.
*****

Greenspan gave a talk in Korea by video conferencing and what he said bollixed the Treasury market. He did it by TV conferencing. The thirty-year is back over 5%.
*****

GM says that bankruptcy is not an option.
*****

Gold ended at $601.60 and Oil at $68.60.
*****

Treasuries closed lower with the two-year at 4.91% and the ten-year at 4.97%.
*****

At the bell the DJIA was up 40 points at 11130. The S&P 500 rose 2 points to 1287 and the NAZZ was up 3 points at 2314.

Breadth was slightly positive at the close.. There were 162 new lows and about 100 new highs.

There is one more trading day before the long holiday week-end. We’ll be in and out.
*****

11 April 2006 Daily Comment

Alcoa announced better than expected earnings last night and is trading up about 6% in early morning action.
*****

D. R. Horton, the homebuilder, said orders rose over 10% to a record for the second quarter and that business was strong in every area of the country except the Midwest where they only have two operations.
*****

M/I Homes also announced record backlog this morning. Bulls will take this as an indication that the housing boom may be getting a third wind. Unfortunately for Bond Bulls the Fed may get the same impression.
*****

The WSJ reports that gold demand by investors and institutions as a commodity holding in a diversified portfolio is a major reason for the increase in the price of gold. The story reinforces the trading phenomenon that folks only like to buy stuff that is going up and only when it is going up. That is known as momentum investing although the folks doing it don’t know that is what they are doing.

In the same vein, we don’t think it is happenstance that Oil is approaching the $70 level this morning on the heels of the introduction of the OIL ETF yesterday. Interestingly we would bet that half the folks buying the Oil Exchange Traded Fund don’t know that they are buying a piece of paper that gives them a future interest in oil and not the actual commodity itself. Heck, it says oil in the title so it must be oil.
*****

Asia was lower overnight and Europe is lower but U.S. stocks are going to open higher on the Alcoa news and some good news from Nokia that the average selling price of its phones for the quarter was 5% higher than previously forecast.
*****

Bausch & Lomb is not going to participate as BOL is going to have to pull all its contact lens solutions ReNu from stores because of an unsanitary production facility. The solution has caused eye infections and so the tort lawyers are circling.
*****

Today is a key day for traders because of the shortened trading week. Yesterday’s action held support at 1295 and the Bulls would like to see the major measures move higher today to preserve the hope for a continuation of the rally after this two week period of consolidation. We are open to a rally into the end of May but don’t think the types of stocks we buy would participate anyway which is why we are hugging the sidelines.
*****

The jury in the Merck Vioxx case awarded $9 million in punitive damages to go with the $4.5 million in compensatory damages. MRK is trading higher on the news but we would think the news is not positive.
*****

The low priced telecom stocks are all going the wrong way today with CIEN down 8% and JDSU down 6%. The speculative run may have been short lived.
*****

At noon the major market indexes have turned south after a less than enthusiastic up opening and the S&P 500 is well below 1295 support and is approaching the line in the sand 1287 support (50 day moving average) we mentioned on Monday. Breadth is 2/1 negative on the NYSE and 3/1 negative on the NAZZ.
*****

Alcoa is up smartly today on the good earnings. AA’s contract with its 9000 unionized workers is up in May and with the good earnings we would presume that the union is taking notice. A strike is expected.
*****

Entering the contra hour new lows exceed new highs for the first time in weeks and breadth is over 2.5/1 negative. The Bulls are going to have to gather it all up to rally today.
*****

Gold ended down $2.40 at $599.40. Oil gained 26 pennies to $69.
*****

Treasuries were a bit better at the finish today with the two-year at 4.87% and the ten-year at 4.93%.
*****

The DJIA lost 55 points to close at 11087. The S&P 500 dropped 11 points to 1286 and the NAZZ lost 23 points to 2310.

Breadth was almost 3/1 negative and volume was moderate. New lows at 190 bested new highs at 150 for the first time in many weeks.

And there are two more casino days left in this shortened gambling week. The prince and princess arrive tomorrow afternoon so our writings will be abbreviated the next two days.
*****

10 April 2006 Daily Comment

We were traveling on Friday and the stocks markets decided that the employment news was bad news and sent stock lower as treasuries moved higher in yield. The S&P 500 closed right at 1295 support on Friday with the next support at 1287 so anything is possible today.
*****

Asia was mixed overnight with Japan lower and Hong Kong higher. Europe is mixed. Gold is back near $600 and oil is up a bit.

The New Yorker magazine is reporting that the Bushies are thinking seriously of dropping a tactical nuclear bomb on Iran. That is good stuff for the oil markets.
*****

Total consumer debt is now $2.2 trillion.
*****

Reports say the Fed is beginning to worry about bank leaning standards as delinquency rates rise. Also St. Louis Fed President Poole is reported by Bloomberg to have said that 5.25% on Fed funds is “reasonable given what we know.”
*****

This morning the exchanges began trading an Oil Exchange Traded Fund that will buy and own oil futures. That ETF which goes under the symbol USO will trade alongside the Gold ETF (GLD) and the soon to be listed Silver ETF. And the casino grows.
*****

We are repurchasing Vodaphone at $22.06 in some large/aggressive accounts because we think that the Verizon acquisition of VOD’s wireless interest in Verizon is nearer rather than farther. We were whip lashed by the stock and took a loss a month ago and that is why we are only initiating in our more aggressive accounts. Should it go lower we will buy more because with VOD selling its Japanese business and the retirement of a top officer we think that the wheels are turning. There was a rumor going around over the week-end about a $26 buyout price but today’s market action would seem to demonstrate a non belief in the validity of the rumor.
*****

We will be relatively comfortable adding to our VZ and T holdings in more accounts if the share prices come down a bit more because the 5% dividends are support.  We like T’s proposed acquisition of Bell South and while that may be a cap on the stock until completed the 5% dividend offers a yield and the random price movements also offer trading opportunities  without the risks associated with momentum stocks. We were early on VZ last year but now more analysts seem to be coming around on the stock and we are hoping to reacquire it in more accounts if it comes back in a bit more.

These purchases don’t reflect a change in our overall bearishness. We are willing to add reasonably priced stocks and also to reinvest in value high yield stocks in which ‘the street’ has begun to take notice.
*****

Oil ended up $1.36 at $68.75. Gold gained 9.10 to $601.80.
*****

Treasuries closed a little better with the two-year at 4.8% and the ten-year at 4.96%.
*****

Second quarter earnings season begins tonight with Alcoa reporting after the close.
*****

At the bell the DJIA was up 22 points at 11141. The S&P 500 gained 1 point to 1296 ad the NAZZ was down 6 points at 2333.

Breadth was negative, volume was light and new highs were a bit over 200 while new lows expanded to almost 150.

And tomorrow is another day. The stock markets are closed Friday.
*****

6 April 2006 Daily Comment

We will be traveling to Chicago tomorrow on business and so the next post will be on Monday April 10.

3M raised guidance and its $3 rise will help the DJIA at this mornings opening. Boeing is also poised to make new highs and Google is back to its highs. The questions of course is how long does the rally continue. The bulls comment is that this rally has been climbing a wall of worry which good rallies have to do.

Since we own no stocks at this point in time we are not in the game and that may be disconcerting for some clients who have only been with us through the last three years of the bull run. Our response is that we told folks who have joined us in the last three years before we ceased accepting new clients that we didn’t and never have outperformed in bull phases of the markets. Our aim is to outperform in bear phases by not surrendering gains and to participate and earn a decent return in the bull phases.

We have done that over the years and plan on continuing to do so.
*****

Wednesday’s markets which we missed were not strong but did finish higher and above the 1309 breakout number that we had been using. Today’s markets will have to continue the move to create new trading territory where 1309 will become support instead of resistance. Our guru sees 1380 as an upside target by the end of May.

That represents a 6% move from this level and if it occurs we will be discomfited that we missed it. But we think the risk is great and the stocks we need to own to participate are all selling on their highs and at the mercy of momentum boys and girls and we aren’t’ ready to accept the risk.

The shares that we recently sold remain on their lows and weak and most are below the price at which we sold. Our reason for not owning stocks now is that the kind of value out of favor stocks we are most comfortable buying are at their lowest in the September October institutional./mutual fund year end house cleaning time.
*****

Jobless claims dropped under 300,000 for the prior week to 299,000. Tomorrow is the employment report for March which is the focus of today’s market. That is the way it is with markets, tomorrow’s news is much more important than today’s news.
*****

Retail sales reports from specialty stores were disappointing this morning but the late Easter is the reason being proffered by the stores and accepted by traders. Wal-Mart same store sales were up 1.2%.
*****

Gold moved over $600 in early morning trading and oil is approaching $68. Treasuries are weaker.
*****

Treasury Secretary Snow offered on Wednesday that the Friday Employment Report would be very good. Since he is not supposed to know those numbers we don’t know whether he was blowing smoke, smoking blow, or illegally in possession of confidential material.
*****

Sears Holdings is buying back another $500 million in stock having just completed a $1 billion share buyback. Buybacks increase the share price over the short run in many cases especially in the case of tiny traded $100 stocks. Eddie Lambert, the fellow now running Sears/Kmart, also is general partner of a hedge fund that owns a huge chunk of SHLD. That is how he got control of SHLD. And he is paid 20% of yearly gains in the fund. B buying back SHLD stock the increases demand for the share which raises the price. And as the price rises he earns 20% of the rise in the value of the SHLD shares in his fund. There would seem to be a conflict of interest since in the long run the money being spent buying shares might better be used in expanding the business or improving the stores.
*****

Wednesday into Thursday in Japan the Nikkei 225 was up 1.4% and in Hong Kong the Hang Seng Index was up 1.9% and Europe is mixed in the early going.
*****

Overnight the European Central Bank left rates unchanged at 2.5% although the President of the bank may have implied that future rate increases are coming; and the Bank of England left their rates unchanged at 4.5%.
*****

Ford said bankruptcy is not an option.
*****

The rise in the price of gold and silver is the talk of the markets. We think it is a supply/ demand shortage created by hedge funds with a lot of money. Gold as a store of value in uncertain times is only a truism for Gold standard buffs.
*****

Breadth is 5/4 negative after a few hours of trading and the major measures are underwater. But the employment report is the focus and that doesn’t come till tomorrow so we don’t expect any great sell off.
*****

The Drug stock Index has broken trend line support as it breaks down on Merck moving lower because of the Vioxx verdict. Merck lost one and won one in a jury trial about Vioxx causing heart attacks in New Jersey, the home state of Merck.  Multiply 25,000 times $5 million and you will get an idea why. Though not lawyers we would think that the jury verdict yesterday will stand on appeal because the jury in effect ruled against one plaintiff while ruling for the other and thus showed that their judgment was rational. This verdict would seem to say that if a person took VIOXX for 24 months before the recall and then had a heart attack that Merck is going to have a problem with juries.
*****

The President of the Chicago Fed Harry Moskow (he’s a non voting member this year) gave a speech today in Europe in which he said:

"The most recent monthly indicators of activity have been quite favorable, and we think that growth in output is rebounding smartly from the low fourth-quarter number. The bulk of our productive resources that were underutilized following the 2001 recession are now back at work. At the same time, core inflation remains contained. The housing sector poses both upside and downside risks. The probable slowdown in housing should be an important factor in bringing growth back to potential. If housing growth remained solid this would then heighten the risk of above-trend GDP (gross domestic product) growth and the further development of pressures on resources."
*****

The Bureau of Labor Statistics adjusts the Monthly Employment Report to account for new jobs or lost jobs that in any given month may not yet be reported. And because historically many new companies start up in the spring, the BLS will adjust tomorrow’s number by adding 200,000 jobs that may or may not have been created to the actual number which is a guess number too. Any number over 250,000 gains will not be well received by the bond market. And perversely we would think that the stock market will also not like a large number because that would mean the Fed will keep tightening. But a good jobs number would mean the economy is continuing to expand which should be good for stocks except when it is not.

When the Fed stops raising rates some traders expect the markets to continue rising because the Fed is done. But if the Fed then begins to lower rates which would be good for business because folks and companies could borrow at cheaper rates, the stock markets may sell off. And that is because lowering rates by the Fed would mean they think that the economy is in danger of contracting.
*****

The low priced tech stocks remain hot as newbie money is going into these stocks. And the tech stocks that have made it to the teens are now probably getting hedge fund and other interest. Those stocks are one way streets- at least they have been for the last few years. We don’t think the second coming of tech utopia is in the cards so we would guess the runs in these issues will end badly.
*****

In our large/aggressive accounts we bought shares of VZ and T for a trade. Both are in the DJIA and are x-dividend today and are off twice as much as the dividend they paid. Yesterday both were more than a point higher than our purchase price.
*****

The Treasury ten-year is at 4.90%. 4.94% will trigger some sell orders in the bonds. There is a rumor floating that the consulting folks, who a couple of weeks ago caused a rally in the bond by issuing a bullish report, are no longer so bullish.
*****

Nigerian nationalists who have been attacking foreign owned pipe lines have said that attacks on those pipelines will commence again shortly. Oil is approaching $68 on that news. Do you think those folks are trading the oil markets? They could be making some good bucks.
*****

Gold closed the day session at a bit under $600 but is now trading over that figure. Oil ended the day at $67.95.
*****

Treasuries were lower on the session as the two-year finished at 4.83% and the ten-year at 4.90%.
*****

The DJIA closed down 25 points at 11215. the S&P 500 lost 2 pits to end at 1309 and the NAZZ was up 2 points at 2362.

Breadth was almost 2/1 negative on the NYSE and volume was moderate. New highs were over 400 and new lows exceeded 100 for the first time in a while.

The Casino will be opening bright and early for the employment news and the accompanying frantic trading. We’ll be traveling to clients so we will bring you news of the action next Monday evening.
*****

4 April 2006 Daily Comment

We’ll be traveling tomorrow so the next post will be on Thursday April 6.
*****

Retail stocks were on the sale counter yesterday; and one reason is that the weekly chain store sales numbers were unchanged on a week to week basis. Since Easter is two weeks later this year there is some guessing that the late date is the reason fro the sales slowdown. If not, the markets will begin to worry since the consumer economy is the backbone of GDP growth.
*****

Franklin Templeton funds are creating a fund to invest in BRIC which is the acronym for Brazil, Russia, India and China. Those four countries are the darlings of the momentum investing and hedge fund communities. One reason is that the stock exchanges in those countries are extremely volatile and the big boys and girls love to play ‘chicken’ trading the shares of companies in those countries.

There was an article last week in the NYT about a hedge fund that invests in Russia whose general partner could not get a visa to enter Russia. Not to worry, he was trading from London.

As in the past our guess is that these “new” growth stories will cost a lot of folks a lot of money.
*****

Asia was mixed overnight and Europe is lower in early trading. Gold is down $1 and oil is up a few pennies. Treasuries are firmer.
*****

After an hour and one half of trading the major measures are higher without conviction.
*****

Wal-Mart going organic is like Limbaugh endorsing the ACLU.
*****

CNBC keeps running alerts like NASDAQ trading at five year high, S&P 500 at four year high. We offer congratulations to the buy and hold folks they may be back to even for the last five years but still 10% below where the S&P 500 was six years ago and 50% below the NAZZ high.
*****

The low priced tech stocks like BRCD, CIEN and JDSU are down today about 5%. This is the second down day for many. They will go down faster than they went up because they are not in strong hands. Many made their 12 month highs on March 31.
*****

At 1:30pm the DJIA is up 80 points and the S&P 500 is approaching 1308. Breadth is 3/2 positive on the NYSE and flat on the NAZZ. New highs are 300 after ending over 500 yesterday. Volume is light.
*****

Gold closed down $1.60 at $590.60. Oil was down 50 pennies at $66.25.
*****

International Paper sold 5.1 million acres of its forest lands to two investor groups for $6.1 billion. That works out to $1200 per acre. IP has now sold 85% of its forests. Weyerhaeuser and Louisiana Land have also sold forest lands to institutional investors like the Harvard and Yale Endowments. These institutional investors are diversifying their holdings and also buying assets that don’t get priced on a daily basis. In fact the value is in the eye of the buyer as is the yearly appreciation. And if remuneration is based on appreciation……
*****

Treasuries were up a tick on the short end and down a few ticks on the long end. The two-year went out at 4.83% and the ten-year at 4.87%.
*****

The DJIA finished up 60 points at 11205. The S&P 500 was helped by a $12 point spurt higher by Google and closed up 8 points at 1306. The NAZZ gained 8 points to 2344 even though CSCO, AAPL and INTC closed lower.

Breadth was 5/4 positive on the NYSE and negative on the NAZZ. Volume was light and new highs contracted to 335.

And the Big Casino will have to survive without us tomorrow as we visit the Casino at the Menomonee Nation in Wisconsin.
*****

3 April 2006 Daily Comment

	Coyote               

The coyote caught in Central Park
Died today when the folks
In a place he did not choose
Folks took to long to let him loose

To Africa some hunters go
To shoot old lions in the brush 
And bring their carcasses back home 
To mount on their walls just for show

In Texas and other states
Hunters quail and pheasant hunt
Birds raised in pens and held on ground
Till old men can gun them down

Often when on the road
You’ll see pheasant cock display
To cars their plumage before they’re crushed
Because they were not wild raised

Man controls and man destroys
The habitat that was not his
And will not be in many years
When nature collapses our many fears

A few hundred years are nothing long
Yet in that time such wrongs been done
There may be only a few hundred more
Before were back to before.
                                    BL3/06

GM is selling the majority stake in GMAC for $10 billion with a $4 billion kicker over the next few years if certain goals are met. Selling off its only moneymaking arm is an indication of how bad things are at GM. We remember in the mid 1990s both GM and Ford and so many billions in Treasuries that analysts were worried that they weren’t getting any bang for their bucks. That is like Greenspan and Congress worried about the budget surpluses in 2001.
*****

The Hang Seng was up 1.7% and the Nikkei up 1.6% overnight in Asia. Europe is also higher as U.S. stocks through the first hour of trading are also doing well.

Basically stocks are recovering from the Friday at the close markdown of the other 499 stocks in the S&P 500 that were sold to make way for Google’s inclusion.
*****

Gold is back up $4 and oil is over $57 as Treasuries are weaker this morning. The two-year is at 4.85% and the ten-year at 4.88%.
*****

Lucent and Alcatel have formalized their merger agreement.
*****

Venezuela is offering to lock in long term contracts for its heavy crude oil at $50 per barrel. The heavy crude is only economical if light sweet crude is trading over $40 per barrel because it must be reduced to light crude.
*****

At two minutes and three seconds after 1am on April 5th the time will be 01:02:03 04/05/06.
*****

At noon Gold is up $7.70 at $595, Oil is higher at $67.50, Treasuries are lower and the major stock measures are all up with the S&P 500 holding just below the 1309 level which  it touched about an hour ago.
*****

With the major measures strongly higher breadth is not reflecting the gain. Breadth on the NYSE is 5/4 positive and it is 5/4 negative on the NAZZ.
*****

GM and Ford reported sales down more than expected for March.

Retail stocks are getting hit with most down today.
*****

For the First quarter of 2006 the DJIA and S&P 500 were both up 3.7%. The Lehman Intermediate Treasury Index was minus 1.4% and the Treasury Long Term Index was minus 4.8%. The Lemley Model Portfolio was up 2.4%.
*****

Gold ended the day session at $594 and Oil was up 11 pennies at $66.74.
*****

Treasuries closed lower with the two-year at 4.86% and the ten-year at 4.88%.
*****

By the bell the DJIA gave up most of its gains but was still up 35 points at 11145. The S&P 500 gained 3 points to 1298 and the NAZZ lost 3 points to 2336.

Breadth was flat on the NYSE and 2/1 negative on the NAZZ and volume was moderate. New highs exceeded 500 on the first trading day of the new quarter.

And the Casino will be open again for the big boys and girls tomorrow.
*****

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